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CA Foundation · Accounting · Financial Statements of Not-for-Profit Organisations

Which statement about the financial statements prepared by a typical not-for-profit organisation is correct?

A not-for-profit organisation prepares an Income and Expenditure Account, which is a nominal account showing the surplus or deficit for the period on an accrual basis. The Receipts and Payments Account, by contrast, is a real account summarising cash transactions.

  1. AIt prepares an Income and Expenditure Account, which is a nominal account, to show the surplus or deficit for the periodCorrect
  2. BIt prepares a Trading Account and Profit and Loss Account to show the gross profit and net profit for each year
  3. CIt prepares an Income and Expenditure Account, which is a real account like the Receipts and Payments Account
  4. DIt does not prepare a Balance Sheet because it has no assets or liabilities

Explanation

An NPO prepares a Receipts and Payments Account (a summary of cash and bank transactions, a real account) and an Income and Expenditure Account (a nominal account on accrual basis showing surplus or deficit). It also prepares a Balance Sheet. Option C is wrong because the Income and Expenditure Account is nominal, not real.

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